A Memorandum of Understanding or more commonly referred as MOU, is a rather popular document but often plagued with problems. This due to the fact that persons who use a MOU do not really understand what it is and how best to use it. Quite often used when parties are on a tight schedule or when time does not allow parties to engage the services of a commercial lawyer to prepare a contract. A poorly drafted MOU would actually costs parties more time and much more costs (due to disputes) and not to mention the work / project that cannot proceed.
Here are some tips for you (or your commercial lawyer) when preparing your MOU.
- Scope of work must be clear.
- Validity period of the MOU. One of the purpose of having a validity period is to “force” parties to negotiate and enter into a formal contract.
- How and what basis payment is made.
- Have a financial limit. Once the scope of work exceeds that financial limit, parties must come back to get approvals.
- To state clearly what is agreed and what still needs to be discussed.
- How disputes are to be resolved.
The necessary clauses in your MOU really depends on the type of transaction you are entering. So, speak to your commercial lawyer for your bespoke MOU.